QUESTIONS Page 63 1. Explain Gresham's law. 2. Explain the mechanism that restores the balance of payments equilibrium when it is disturbed under the gold standard. 3. Suppose that the pound is pegged to gold at 6 pounds per ounce, whereas the franc is pegged to gold at 12 francs per ounce. This, of course, implies that the equilibrium exchange rate should be 2 francs per pound. If the current market exchange rate is 2.2 francs per pound, how would you take advantage of this situation? What would be the effect of shipping costs? 4. Discuss the advantages and disadvantages of the gold standard. 5. What were the main objectives of the Bretton Woods system? 6. Comment on the proposition that the Bretton Woods system was programmed to an eventual demise. 7. Explain how special drawing rights (SDRs) are constructed. Also, discuss the circumstances under which the SDRs were created. 8. Explain the arrangements and workings of the European Monetary System (EMS). 9. There are arguments for and against the alternative exchange rate regimes. a. List the advantages of the flexible exchange rate regime. b. Criticize the flexible exchange rate regime from the viewpoint of the proponents of the fixed exchange rate regime. c. Rebut the above criticism from the viewpoint of the proponents of the flexible exchange rate regime. 10. In an integrated world financial market, a financial crisis in a country can be quickly transmitted to other countries, causing a global crisis. What kind of measures would you propose to prevent the recurrence of an Asia-type" crisis? 11. Discuss the criteria for a "good" international monetary system. 12. Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate. Explain why this may be so. 13. Assess the possibility for the euro to become another global currency rivaling the U.S. dollar. If the euro really becomes a global currency, what impact will it have on the U.S. dollar and the world economy